Johannesburg - When the Auditor General’s office took over the duty of auditing state-owned airline South African Airways (SAA) financial records in 2016, it found an organisation in shambles, the Zondo commission heard.
The inquiry on Friday heard testimony from Polani Sokombela, the business executive at the AG’s office.
Sokombela explained how the AGs auditing processes work. He focused his testimony on SAA's appointment of external auditors, PricewaterhouseCoopers (PwC) and Nkonki, between 2012 until 2015. He said SAA had continuously notified the AG's office on its appointments and re-appointments of the auditing firms.
Nkonki and PwC edited the organisations books for a period of five-years. The contract was split between the companies with Nkonki receiving 60% of the load while PwC obtained 40%.
The two companies audited the airline’s books and for all those years rubber-stamped the airline’s financial books by awarding clean audits.
However, when the AG took over auditing the company in 2016 a different picture emerged. Sokombela explained that SAA’s books were in shambles.
Sokombela listed a number of concerns that the auditing process found. The first was that compliance at the airline was a serious issue with irregular expenditure at R125 million.
Secondly the office found that critical vacancies had not been filled which left a gap in policy comprehension and appliance at the airline. Thirdly, record keeping at SAA was poor with some of the airline’s polices being old and outdated. Fourth, the handling of contracts awarded by the airline was of concern. Sokombela highlighted one particular contract which was awarded to aviation service provider Swissport. SAA awarded the contract to the company even though it did not have an ACCA licence.
The commission’s chairperson deputy chief justice Raymond Zondo expressed concern that Nkonki and PwC had awarded SA with clean audits for five years while the AG came to a different conclusion.
Zondo: "I get the sense that SAA was in disarray, is that a fair comment?"
Sokombela: "It is Chair because things were not going well."
Sokombela explained when the auditing process was done, the issues of concern were raised with SAA management and its board. He said both gave an undertaking that recommendations would be implemented. However, a year later little had changed and irregular expenditure had risen.
“We were disappointed because we raised some issues and we had hoped that things would change. Those commitments that were made were not honoured,” he said.
“What the SAA board and executives were busy with was engaging the lenders and as a result, things on the ground were different. For the CFO and CEO it was a crisis mode every day, they were meeting lenders and stakeholders. Even if SAA is an airline it cannot be in crisis mode always.
The leadership instability at SAA played a very big role. If people always change then things get neglected and lead to instability. We were disappointed because we raised some issues and we had hoped that things would change. Those commitments that were made were not honoured,” Sokombela said.
A partner at PwC, Pule Joseph Mothibe, is expected to appear at the inquiry soon to explain the firms handling of SAA’s financial records.
SAA has been struggling financially for years and unable to make a profit. In December, President Cyril Ramaphosa announced that the airline would be placed under business rescue. The business rescue practitioners appointed had recently raised the ire of unions and politicians when it was decided that the airline would cancel some of its unprofitable routes and only keep strategic routes.
The inquiry resumes on Tuesday.